Aflac Takes Position in Varagon from Oak Hill

Varagon Capital Partners, a lender to middle-market companies, has entered into a new partnership agreement with Aflac Global Investments and has extended its existing partnership agreement with American International Group (AIG).

Varagon was formed in June 2014, backed by AIG and certain partners and affiliates of Oak Hill Capital Management as a direct lender to middle-market companies, and launched at that time with a $1.5 billion investment commitment from AIG.

Varagon provides debt financing to middle-market companies that have from $10 million to $75 million of EBITDA. Product types include revolving credit facilities, first-lien and senior debt, unitranche and senior stretch, second-lien loans, junior capital and mezzanine debt. The firm has a hold size of up to $400 million and invests across a wide range of industries.

Today, it was announced that Varagon provided a senior secured credit facility to Easy Ice to support its acquisition by Freeman Spogli. Varagon served as Administrative Agent and Joint Lead Arranger on this transaction. Easy Ice, co-headquartered in Phoenix, Arizona and Marquette, Michigan, is an outsourced provider of commercial ice machines and offers a national subscription service that includes installation, cleaning, preventive maintenance, repairs, backup ice, and peak demand ice. Easy Ice services more than 25,000 ice makers across 47 states.

Another recently closed transaction by Varagon was a senior secured credit facility to AIM MRO to support its acquisition by AE Industrial Partners. Varagon served as the Administrative Agent, Lead Arranger and Bookrunner on this transaction. AIM MRO is a Miamiville, Ohio-based manufacturer and supply chain manager of repair products and materials used primarily in the aerospace engine aftermarket.

Since founding in 2014, Varagon has made over $14.5 billion of financing commitments to over 180 companies. The firm is headquartered in New York City with additional offices in Fort Worth and Chicago.

Varagon is led by CEO Walter Owens and it will continue to operate as an independent company with no changes to its strategy, investment philosophy, management team, or day-to-day operations. Mr. Owens, prior to joining Varagon at its formation, previously held leadership positions at GE Capital, CIT Group, and TD Bank.

“We are excited to welcome Aflac as a new partner and to continue our strategic relationship with AIG,” said Mr. Owens. “These long-term commitments from two world-class insurers provide access to substantial capital, enhance Varagon’s capabilities to serve investors and borrowers, and accelerate the execution of our strategic growth objectives. We appreciate Aflac’s recognition of Varagon’s capabilities as a leading middle-market asset manager and we look forward to a successful partnership.”

According to the terms of the new partnership agreement, Aflac will make a multi-year investment commitment of up to $3 billion to Varagon to invest in middle-market loans and Aflac is acquiring the equity interests in Varagon currently held by current and former partners and affiliates of Oak Hill. The transaction will not reduce the ownership of Varagon held by its management team or AIG, and upon closing (expected by the end of the first quarter) Aflac and AIG will hold equal noncontrolling minority ownership stakes in Varagon.

“Middle-market credit is a strategically important asset class for Aflac, and we are excited to partner with Varagon,” said Eric Kirsch, executive vice president of Aflac. “Varagon’s rigorous investment underwriting process and proven origination capabilities directly align with Aflac’s strategy of partnering with high-quality asset managers.”

Aflac Global Investments is an asset management subsidiary of Aflac Incorporated (NYSE: AFL), an American insurance company and the largest provider of supplemental insurance in the United States. The company was founded in 1955 and is headquartered 100 miles south of Atlanta in Columbus, Georgia. Aflac Global Investments manages more than $120 billion in assets and has 125 investment and support professionals who work at its offices in New York City and Tokyo.

“As a long-term investor with a focus on credit discipline, we see an attractive opportunity in middle market credit and are pleased to continue our partnership with the Varagon team,” said Geoffrey Cornell, deputy chief investment officer of AIG Investments. “We are proud to have been an early backer of Varagon and we are looking forward to Aflac joining our strategic partnership to jointly support Varagon’s continued growth.”

American International Group (NYSE: AIG) is an American multinational finance and insurance corporation with operations in more than 80 countries. The firm is headquartered in New York City and has more than 56,000 employees.

Wells Fargo Securities was the financial advisor to Varagon and Rothschild & Co was the financial advisor to Aflac.

© 2020 Private Equity Professional | January 9, 2020

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